The direct taxes code Bill, which was approved by the Union Cabinet on Thursday, has made further concessions from what was originally proposed.
The discussion paper had proposed withdrawing exemptions on investment in SEZs after April 2011.
At present, units in SEZs enjoy 100 per cent tax exemption on their income for the first five years, 50 per cent in the next five years and another 50 per cent on re-invested profits in the following five years.
SEZ developers get 100 per cent tax exemption on profits for 10 years, which can be used in the first 15 years. Due to these tax sops, the finance ministry had to forgo revenues worth `5,266 crore in 2009-10.
SEZs, along with treatment of capital gains and unit-linked insurance plans were the major bones of contention.
Officials in the finance ministry said that compared to the second discussion paper that was released in June, around half a dozen changes had been introduced in the Bill that was discussed by the Union Cabinet today.
DTC had also proposed to treat capital gains from stocks and equity funds as part of ordinary income.
At present, no capital gains tax is paid on long-term gains. Income from sale and purchase of securities to foreign institutional investors was also proposed to be taxed under capital gains.
This suggestion was opposed by FIIs because currently it is treated as business income of a foreign company.
Another widely opposed proposal of the draft DTC was to impose tax on Ulips.
The draft had proposed to tax exempt provident fund, new pension system, approved pure life insurance products and annuity schemes at the withdrawal stage, but Ulips were kept out of this exemption.
Officials said a major effort was on to simplify the law and make it modular in nature so that it could be useful for the next 50 years.
"The idea is to simplify the existing Income Tax Act which has gone through many amendments and become very cumbersome," an official said.
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